Educational Articles

Mutual Fund Screen: Top Performing Global Equity Funds of 2012

Robert J. Adamski and John D. Burke
| February 22, 2013

Value Line’s Global Equity objective group consists of mutual funds that can own stocks from any country in the world. This is very different from the Foreign objective, in that Global funds can own U.S. stocks while Foreign funds specifically cannot. This is an important distinction about which investors using an asset allocation model should be aware, as the domestic component of a Global fund can throw off certain allocations if the fund’s portfolio isn’t properly accounted for in the larger asset allocation plan.

Still, for some investors who are seeking international exposure but that are concerned about the risks of owning a fund that invests exclusively in foreign stocks, a Global fund might work very well. The problem, however, is that many of these funds place a significant amount of their portfolios in U.S. stocks. This can make their portfolios very close in nature to Growth funds that are allowed to invest in foreign markets. Thus, it is important to review a Global fund’s holdings carefully to see if it is a good fit. Moreover, it might make sense to compare a final list of candidates from this objective group against more broadly invested Growth funds.

Funds in the Global objective group are, by design, generally well diversified. In fact, some funds in this group actually use the word “world” in their names to express just how broad their investment mandate is. Despite that broad mandate on the country front, many here take specific investment approaches, such as focusing on small cap companies, dividend paying companies, or growth and value investment styles. There are also a number of funds here that are designed to be the sole stock offering in a portfolio.

Over the long term, the Global Equity objective group has been a good performer relative to the broader market, as measured by MSCI WORLD Index. For the 10-year period ended January 31, 2013, the group had an annualized gain of 9.0%, while the MSCI WORLD Index reported an annualized gain of 7.1%. Over the trailing five and three year periods, the group had a gain of 1.9% and 10.4%, respectively, while the Index reported a loss of 0.9% and a gain of 7.9%, respectively. During the one-year period ended January 31, 2013, the Global Equity objective group reported a gain of 14.2%, compared to a gain of 13.3% for the MSCI WORLD Index. The group has an average Risk Rank of 3, indicating that funds in this group might appeal to many investors, who would only need to accept an average level of risk.

One fund with a relatively high one year return through January 31, 2013 is Kinetics Small Cap Opportunity Fund A (KSOAX). The fund seeks long-term growth of capital. The Small Cap fund is a non-diversified fund that invests all of its investable assets in the Small Cap Opportunities Portfolio, a series of Kinetics Portfolios Trust. Under normal circumstances, the Small Cap Portfolio invests at least 80% of its net assets plus any borrowings for investment purposes in common stocks, convertible securities, warrants and other equity securities having the characteristics of common stocks (such as ADRs, GDRs and IDRs) of U.S. and foreign small capitalization companies that provide attractive valuation opportunities. The Small Cap portfolio may also invest in ETFs and write and sell options on securities in which it invests for hedging purposes and/or direct investment. The Small Cap portfolio’s investment adviser (Kinetics Asset Management LLC ) considers small cap companies to be those that have a market capitalization of less than $3 billion. The fund may invest up to 20% of its total assets in convertible and non-convertible debt securities rated below investment grade, also known as junk bonds, or unrated securities which the investment adviser has determined to be of comparable quality. Kinetics focuses on undervalued and special situation small capitalization equities it believes have the potential for rewarding long-term investment results. Small Cap Portfolio securities will be selected from companies that are engaged in a number of industries if, in the Investment Adviser’s opinion, the companies meet the Small Cap Portfolio’s investment criteria ( e.g. , companies that are selling below their perceived intrinsic value, have limited or no institutional ownership, have had short-term earnings shortfalls, have had a recent IPO but have not attracted significant analyst coverage, are selling at or below book or replacement value, and have modest price to earnings ratios).

Another fund with a relatively good year-to-date return through January 31, 2013 is Fidelity Mid Cap Value A (LSHAX). The Fund seeks long term growth of capital. The fund normally invests at least 80% of assets in securities of companies with medium market capitalizations (which, for purposes of this fund, are those companies with market capitalizations similar to companies in the Russell Midcap® Index or the S&P MidCap 400® Index). The fund potentially invests in companies with smaller or larger market capitalizations. Management invests in securities of companies that Fidelity Management & Research Company (FMR) believes are undervalued in the marketplace in relation to factors such as assets, sales, earnings, growth potential, or cash flow, or in relation to securities of other companies in the same industry (stocks of these companies are often called "value" stocks), using the Russell Midcap® Value Index as a guide in structuring the fund and selecting its investments. The fund may invest in domestic and foreign issuers. Management uses quantitative analysis to evaluate growth potential, valuation, liquidity, and investment risk, along with fundamental analysis of factors such as each issuer's financial condition, its industry position, and market and economic conditions to select investments.

A third fund with very good return going into 2013 is Oppenheimer Global Value Fund A (GLVAX). The fund seeks capital appreciation. Management invests mainly in common stocks of U.S. and foreign companies that it believes are undervalued. The fund can invest without limit in foreign securities in any country, including countries with developed or emerging markets. Typically, the fund will invest a substantial portion of its assets in issuers in a number of different foreign countries. The fund does not limit its investments to companies in a particular capitalization range or region. The fund's investment objective and strategies are not fundamental policies. Value investing uses fundamental analysis to seek companies whose intrinsic value is greater than the current price of their securities. This approach includes fundamental analysis of a company's financial statements, profitability, management structure, operations, business strategy, product development, and its position within its industry, among other things. The portfolio manager evaluates investment opportunities on a company-by-company basis.

In the table below, we have listed 10 top-performing funds through January 31, 2013 that we follow in our Fund Advisor database.